Former Fed Chairman Ben Bernanke wrote a piece about gold in 2002 and I wanted to share it with you while we watch the price of gold move higher and higher. It is needed to do this and put things into perspective as to why you own gold now and most likely why you should be buying more over the next year before prices really take off, which they will.
I changed the word gold to “FRNs” and you tell me which one you believe in after reading these parables.
Here is the original quote from Ben Bernanke:
The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject’s oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.
I changed one word: “gold” to: “FRN(s).” Changed a few other words to have it make sense. (FRNs are Federal Reserve Notes or what we today call dollars).
The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today $300 FRNs can buy you an ounce of gold, more or less. Now suppose that a modern alchemist solves his subject’s oldest problem by finding a way to produce unlimited amounts of new FRNs at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of FRNs within days. What would happen to the price of FRNs? Presumably, the potentially unlimited supply of cheap FRNs would cause the market price of FRNs to plummet. Indeed, if the market for FRNs is to any degree efficient, the price of FRNs would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single FRN.
See how central bankers twist things? And the investing world looks to them as “all knowing.” And markets move up or down on everything they say in their bi-monthly meetings and interest rate decisions.
There won’t be a modern alchemist producing unlimited amounts of gold, but we already have the other parable playing out live. To compare the two parables as being equal by a modern day central banker just shows you how out of touch with reality they are.
This was written by Bernanke when gold was $300 an ounce. Today it is over $1,500 an ounce. And keep in mind these FRNs have 48 short years of existence without a relationship to gold. One of these is honest money. The other is an illusion of wealth. When that illusion is priced in other illusions it disguises the wealth till said time when the market exposes the masquerade known as fiat (FRNs) and the crack up boom begins. There is a reason that over time it takes more of all currencies (illusions) to buy more gold. 48 years and trillions of debt. How we doing? It’s not a question of “if” but “when the crack up boom begins and gold shoots higher.” The price movement you see now is nothing compared to what is to come after the deflationary episode I have written much about concludes. If you have the insurance of gold and silver you don’t care about the “when.”
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About Doug EberhardtDoug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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